Testimony to Special Committee on University Governance

CONSIDERATION OF GOVERNANCE FOR OREGON PUBLIC UNIVERSITIES

Testimony Before the Special Committee on University Governance

Edward J. Ray

Oregon State University

June 21, 2012

Thank you for providing the opportunity for me to share my observations regarding the establishment of local or institutional boards at Oregon universities. My views are based on serving in leadership roles in academic affairs at Ohio State University between 1992 and 2003. During this time the university had an institutional board and a system board of regents. In Ohio, the board of regents had little effective power with regard to operating and capital budgets. Ohio State had the most powerful board in the state and made its funding arguments directly to the legislature. The institutional board met monthly and both collectively and individually board members regularly struggled to minimize micro-managing university operations. We never talked about “the system” or “state needs”.

I served as a point person for 11 years for Academic Affairs -- as associate provost, senior vice provost, and executive vice president and provost, in coordination with the board office in scheduling sessions for the board and sub-committees and responding to board and sub-committee inquiries about university operations. The resource requirements to meet board requests were fairly continuous and substantial.

By contrast, in nine years as president of Oregon State University I have never felt that the OUS board has tried to micro-manage the university or that our reporting requirements were unreasonable. We talk about the system and state needs on a regular basis.

Recommendation #1: Manage to the 40-40-20 Goal

The Mission of Public Universities in Oregon – Education, Research, and Human, Economic and Environmental Well-Being. Before discussing how governance may affect the education mission of Oregon’s public universities, it is important to be clear that the establishment of the 40-40-20 goal in no way diminishes the importance of the roles public universities play in basic and applied research, advanced educational training at the professional and doctoral levels, and the creation of new businesses and jobs in Oregon. The services provided by public universities to the general public through such efforts as 4-H and the statewide public service programs must continue to be fulfilled.

While this point is important for the delivery of services to Oregonians, my objective today is to address the issues of delegated and non-delegated authorities to universities and institutional boards. Although I do not believe that Oregon State University would benefit from the creation of a local governance board, I also address the ways in which local boards may be able to operate cost effectively to provide positive value toward achieving the 40-40-20 goal.

My focus today is on the education of the people of Oregon and how changes in governance will either add to, or detract from, our ability to meet the 40-40-20 goal. For all universities, the two most important ingredients in achieving 40-40-20 and the other goals of public higher education in Oregon are greater flexibility and more financial support.

A. Greater flexibility at the individual university level. Flexibility should be available to all institutions, regardless of what additional steps the legislature may wish to take to establish local governance boards. Flexible management at the university level will enhance all of the roles that universities play in Oregon’s economy – teaching, research and outreach and service.

Although the adoption of SB 242 in 2011 provided some relief from the dysfunctional regulations of state agency status, we could use additional operating flexibility to enable us to provide more “bang for the buck” in meeting the 40-40-20 goal. These include:

1. The authority to purchase and sell real property. This authority should include a defined dollar limit in value with the understanding that the legal title for all property remains with the state.

2. The ability to issue self-financed revenue bonds within certain bounds. I appreciate the Committee’s support for enabling universities to use their own funds and borrowing capacity to finance capital projects.

a. Any enabling legislation should establish a defined limit of debt service on capital projects as a percentage of operating revenues.

b. The Committee should carefully consider whether it is in the financial interest of the state for universities to seek such bonding on their own, or through the University system.

In any case, whether or not they are governed by a local board, universities should be able to seek bond financing for buildings that do not involve state general or lottery funds.

3. The ability to adopt alternative salary, benefits and retirement programs. Universities should be able to opt out of state programs, providing that the state or system packages are not more cost effective.

Universities should be empowered to manage salary increases up to a fixed percentage without requiring the approval of the system board.

4. Limited tuition flexibility. Universities should have limited tuition flexibility for resident undergraduate tuition levels subject to compliance with state level guidelines. They should have complete flexibility in setting non-resident tuition.

5.Authority to manage legal affairs coordinated through the state governing authority.

B. More financial support

1. We cannot govern our way out of a financial ditch. While I have always said that OSU cannot rely on state appropriations to increase our impact, we all rely on a baseline of support. Increased investments in the teaching, research, and outreach services that all of the state’s universities provide will enable Oregon to compete in the national and international economy. These efforts should include targeted financial support for the research and outreach services that universities provide to state citizens. Universities should also rely on a diversity of funding sources from state, philanthropic, industry, and competitive grants.

2. There is no evidence that merely creating a local governing board will, in and of itself, create more financial resources for a university. Major donors already are tremendously influential on our campuses and the OUS board is not an impediment to achieving financial success – in fact it has been consistently helpful in securing legislative approval of OSU capital projects that involve donor funds.

OSU has been successful in fundraising due to the clarity of our vision and the excellent leadership and involvement of the OSU Foundation. Every dollar we raise is aligned with the goals of the university.

Summary: The establishment of local boards in Oregon will not raise our rank among the bottom ten states in terms of state support for universities. And depending on how they are configured local boards could divert funds away from classrooms and lecture halls.

Recommendation #2: Resolve State Level Governance Issues before addressing the Local Board Issue

Before the Committee addresses the issue of how to configure local governance boards, it should resolve statewide issues, including the overall governing authority for public higher education. In particular there is uncertainty about how the Oregon Education Investment Board (OEIB) and the Higher Education Coordination Commission (HECC) relate to each other and to the State Board of Higher Education.

Although the legislature sought to clarify a number of issues regarding the OEIB and HECC during the February session when it passed SB 1538, it is frankly still unclear how these entities will ensure alignment of objectives at the university and state level to achieve our common goal of 40-40-20.

Straightening out the confusion over the new education entities and describing the duties of local governance boards should not be done simultaneously. The big issues need to be resolved first, so that we know the framework within which achievement compacts will be enforced and folded into future budgets. With that information in hand, we can then assess how local boards might advance our efforts to achieve 40-40-20. For example, how could local boards ensure that universities and community colleges are held accountable for each other’s success in transitioning students from high school on?

Until this committee addresses fundamental questions about the state’s role in developing and applying higher education policy and funding, establishing a local board could prove to be an empty promise or even a give-away of the state’s interest in assets it created over the last 150 years with nothing enduring to show in return.

The configuration of local boards to meet the needs of the statewide governing authority

Since HB 4061 created this special committee to produce enabling legislation for the 2013 session to create local boards, I will address a number of considerations that should be considered as the committee moves forward.

A. Authorities that should be RETAINED at the STATE LEVEL to ensure alignment with state goals, regardless of whether local boards are created. To ensure consistency with statewide goals, the following responsibilities should be retained at the state level:

1. The allocation of state general funds among universities and the establishment of state priorities for capital projects that rely on state matching funds or borrowing capacity.

2. The establishment of limitations for tuition rates for resident students, revenue bond borrowing, the sale and purchase of real property, and compensation increases.

3. The compliance by each university with established performance or achievement compacts.

4. The submittal of a unified budget to the legislature for which the state board coordinates lobbying and advocacy activity for the public universities.

5. The development of university mission statements and major educational programs and initiatives.

As the Committee considers issues around the OEIB, HECC and OUS Board, it should keep this list of state-level authorities in mind and should seek to be as clear as possible about which entity is responsible for each item above. If it is not direct about which entity has responsibility for each of the items above, there is a significant likelihood that local boards will fill the vacuum in a manner that could detract from our ability to manage to the 40-40-20 and other statewide goals.

Further, if the legislature does not establish statewide clarity it runs the risk of encumbering future legislatures with having to resolve and manage issues among the institutions as we all seek to pursue our individual goals independently.

B. State level authorities if local boards are created. Local boards represent a local power base that will advance local interests which may not align with those of the statewide governing, coordinating, or budgeting agency. Alignment among all of the institutions is crucial if Oregon is to achieve the 40-40-20 goal cost effectively.

1. Demonstration of support. Any process to establish a local board at an institution should involve a process by which the university demonstrates sufficient support for an institutional board among faculty, staff, students and supporters of the university to warrant such a change.

2. All members of local boards should be appointed by the governor and perhaps confirmed by the Senate. It does not matter that some members may be from out of state, but it does matter that every member of a local board is able to demonstrate a commitment to supporting the public’s interest in the institution. The Governor should make the decision about who meets this level of commitment.

The Governor should appoint the board chair. Terms should be no more than six years, renewable once and staggered

Appointments should be with advice from university, foundation, students, and other leaders, including the members of the board themselves. The board chair should be limited to a single three year term.

Students, faculty, and staff should be represented on the local board with perhaps two year terms.

The board should consist of no more than 12-15 members.

Local boards should be organized to conduct quarterly meetings except in emergencies.

3. The state oversight board should approve the appointment and reappointment of presidents and should be enabled to remove a president for cause.

C. Local Board Authorities and Responsibilities

1. Accountability for meeting achievement compacts. Institutional boards should be charged to hold university leadership accountable for meeting achievement compact goals, including enrollment and graduation targets for all Oregonians and for students from under-served populations, as well as enrollment and graduation rates in targeted skill areas for the state.

2. Authority to hire and fire presidents, subject to the approval of the state governing authority.

3. Assessments of academic offerings. Local boards should assess the quality and effectiveness of all academic offerings, administrative, business, financial and other services, and the effectiveness of shared governance performance with respect to students, staff and faculty on an annual basis.

4. Strategic Planning. Institutional boards should ensure an institutional strategic plan exists for the institution’s financial and capital plans, enrollment management plans, and other matters and this plan is in concert with state needs. An institutional board has the potential to be the local eyes and ears of the state for day to day management of the university and the source of institutional memory, rejuvenation, and sustainable commitment to long term goals that align with state needs on a continuing basis and even as administrative leadership changes occur.

5. Approval/removal of the President. Once a board is established, the university president could be appointed and removed by the local board with the advice and approval of the state governing board.

6. Operational flexibilities. As described in the earlier section on operational flexibilities, if a local board exists its oversight and implementation management responsibilities could include:

Approval of salary increases up to a fixed percentage without requiring the approval of the system board.

Development of health benefits and retirement benefit packages, providing that system packages are not more cost effective.

Authority to use the university’s own borrowing capacity up to a defined limit of debt service on capital projects as a percentage of operating revenue.

Authority to purchase and sell real property up to a defined dollar limit in value with the understanding that the legal title for that property remains with the state.

Authority to address personnel policies for faculty and staff.

Authority to manage legal affairs coordinated through the state governing authority.

D. A Local Board at Oregon State University. As Oregon’s land grant university, Oregon State University is committed to the timely and cost effective achievement of the 40-40-20 goal and to supporting a governance structure that serves the people of Oregon well. I have stated throughout this process that I do not favor the establishment of a local board at Oregon State University for two basic reasons:

First, we enjoy a strong, functioning relationship between Oregon State University and the State of Oregon that has functioned to serve Oregonians across the state through education, research, and public service.

Second, an appropriately limited local governing board provides limited value at potentially significant cost. I currently benefit from all the good advice and assistance I need from the State Board, the Faculty Senate, the Oregon State University Foundation Board of Trustees, the Alumni Association Board and the elected student government.

If such a board is to be created at Oregon State University, I hope that time will be allowed for us to fully engage faculty, staff, students, alumni, foundation colleagues and donors, in a conversation regarding the best governance structure for OSU.

I hope these remarks advance the conversation regarding the best governance structure for public higher education in Oregon. The structure we adopt must ultimately be judged by its effectiveness and efficiency in enabling Oregon to achieve the 40-40-20 goal, to advance research and to provide services that meet the needs of the people of Oregon as expeditiously and cost effectively as possible.